Global Economy - Real GDP Growth Rate

Questions: 1. Collect annual data for each year from 2004 to 2013 for three countries, Australia, China and Indonesia, at https://data.worldbank.org/indicator. Under all indicators find and download data for the following macroeconomic variables. Real GDP growth rate (annual %) Real GDP per capita Inflation: consumer prices (annual %) Unemployment rate2. Draw a business cycle diagram for each of the countries using the real GDP growth rate data and show on which point of the business cycle each of your countrys is at now. What may be possible causes for your countrys to be on the point of the business cycle? Answers: Introduction The variable factors of macro economics which includes Real GDP growth rates, Real GDP per capita rates, Inflation rates and the unemployment rates are the key variables who aim at providing the real economic picture of the country with respect to its position in the business cycle (Besley, 2011). The project here deals with the analysis of the economic position of three countries namely Australia, China and Indonesia with the help of the different variables. 1. Real GDP growth rate According to Peng (2013), the real GDP is the sum of gross value added by all the resident producers in the economy of a country plus any product taxes minus any subsidies excluded from the value of products. Name of country 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Australia $ 4.16 $ 3.22 $ 2.99 $ 3.76 $ 3.70 $ 1.73 $ 1.96 $ 2.32 $ 3.73 $ 2.51 China $ 10.09 $ 11.31 $ 12.68 $ 14.16 $ 9.63 $ 9.21 $ 10.45 $ 9.30 $ 7.65 $ 7.67 Indonesia $ 5.03 $ 5.69 $ 5.50 $ 6.35 $ 6.01 $ 4.63 $ 6.22 $ 6.49 $ 6.26 $ 5.78 The GDP rates of Australia when compared with China and Indonesia shows that China has a higher GDP rate in all years. As per the economic data in the year 2013 the GDP of China is 56.88 trillion by the expenditure approach which is equivalent to 9.2 trillion US dollars (Roubini and Mihm, 2010). From the comparison it may be noted that the GDP rate of China shows that it has the second largest economy in the world after United States. China has been experiencing 9.91% growth in GDP from 2004 to 2013. Indonesia follows the chart after China showing a GDP growth rate of 5.8% annually from 2004 to 2013. Since Indonesia is one of the emerging markets in the South East Asia hence a further growth is forecasted (Brusov, 2012). However Australia is noted to be the country with the lowest GDP growth of around 2.7% annually from 2004 to 2013. The major economic sector of the country is the service sector which contributes very low growth to the countrys GDP. Real GDP per capita GDP per capita is the gross domestic product divided by the mid year population. The goods and services produced within the boundary of the particular country falls under the per capita calculation of the GDP. Formula: (Total output of the country / the total number of people in the country) The chart shows that the per capita rate of China is again higher than the per capita of other two countries. The adoption of these three countries for the purpose of analysis has been taken because China is projecting the second largest economic growth and Indonesia shows the third largest economic growth. Comparison with these two countries has helped in analyzing the economic position of Australia. Australia is further experiencing a negative per capita GDP (Milberg and Winkler, 2013). Name of country 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Australia $ 2.96 $ 1.86 $ 1.48 $ 3.11 $ 1.64 $ (0.34) $ 0.39 $ 0.91 $ 1.98 $ 0.71 China $ 9.43 $ 10.66 $ 12.05 $ 13.57 $ 9.07 $ 8.67 $ 9.91 $ 8.78 $ 7.13 $ 7.14 Indonesia $ 3.54 $ 4.19 $ 4.00 $ 4.84 $ 4.53 $ 3.20 $ 4.82 $ 5.12 $ 4.95 $ 4.51 Inflation: consumer prices The inflation rate is measured by the consumer price index and it effectively reflects the annual percentage change in cost to the average consumer for acquiring goods and services that may be fixed or changed at specific intervals (data.worldbank.org/indicator, 2015). Name of country 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Australia $ 2.34 $ 2.67 $ 3.54 $ 2.33 $ 4.35 $ 1.82 $ 2.85 $ 3.39 $ 1.76 $ 2.45 China $ 3.88 $ 1.82 $ 1.46 $ 4.75 $ 5.86 $ (0.70) $ 3.31 $ 5.41 $ 2.65 $ 2.63 Indonesia $ 6.24 $ 10.45 $ 13.11 $ 6.41 $ 9.78 $ 4.81 $ 5.13 $ 5.36 $ 4.28 $ 6.41 In this chart a low rate of inflation is seen in Australia which chows that the country is able to control the inflation rate by controlling the prices of the products effectively. However Indonesia shows a high level of rise in the inflation rate in the consequent years which shows that the purchasing power of the citizens of the country is getting reduced. The inflation rates of Indonesia suggests that the saving power of the people is low their compared to China and Australia. The CPI comparison to show the inflation rate of the three countries show that despite the poor GDP rate Australia is able to keep the inflation rates lower than Indonesia. However the line graph shows that rate of inflation in Indonesia is highly volatile surging up to about 13.11 in 2006 and going down by 4.81 in the year 2009. The rise in the Indonesian inflation in 2006 is majorly due to rise in prices of energy, fuel and electricity. According to Hill (2010), the rates of these prices are set by the government of Indonesia which shows that the rates cannot be changed according to the fluctuating market conditions. Hence the deficit which occurs due to the fluctuations in the market rate are adjusted with the help of subsides. This in turn creates pressure on the governments annual budget deficit and also limits the public spending on long term productive matters like infrastructure and social expenditures. Hence by reduction of the energy subsidies the government of Indonesia was able to control the rate of inflation in 2009. Although the central bank of Indonesia initially rated an inflation rate of 4.5%inb 2013 however with the hike in the prices of electricity the inflation rate surged up to 6.41%. The high rate of inflation in Indonesia is making the food prices sore up by high percentage which is creating a situation of poor condition for the citizens since the unemployment rate in Indonesia is also high. The household in Indonesia spends more than half of their total expenditure on the food items consumption. The higher food prices on the other hand cause poverty basket inflation in Indonesia which subsequently increases the level of poverty in the country (data.worldbank.org/indicator, 2015). Unemployment rate Besley (2011) has defined unemployment rate as the total percentage of unemployed workers in the labor among the total labor force. The labor performance market can be analyzed with the help of this rate. Name of country 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Australia 20.6 18.3 18.1 15.4 14.9 14.7 18.5 18.9 20.3 0 China 10.1 9.8 9 4.2 4 4.3 6.5 4.6 6.1 0 Indonesia 45.1 46.1 46.1 47.5 47.6 42.6 50.6 49.1 46.3 0 The chart shows a positive data for China where the country is recording a low unemployment rate for the period of 2004 to 2012. However the real rates suggest that the country shows a very low unemployment rate of around 4.1% in case of urban unemployment which excludes private enterprises and migrants. Indonesia on the other hand shows a negative unemployment rate because the country is not developed in respect of the economy. According to Ewa Kope (2011) the economic growth rate of Indonesia has declined over the years with the majority of employment recorded in the agricultural sector while the rest in trade, social services, construction, transportation, finance and other sectors. The major reason for this being lack of appropriate educational facilities in Indonesia. Around 65.96% of the population in Indonesia is recorded to have vocational training instead of proper educational training. Moreover the declining growth rate of the local industries in Indonesia is another contributing factor for the high unemployment rates. The financial reports of Economic Times shows that the growth rate of industries are declining because the industries dont have the sufficient amount of money to purchase raw materials for the purpose of industry product manufactures and hence they require high expenses for the purpose of importing the raw materials. 2. Business cycle diagram The Real GDP rates of Australia Shows that the business cycle is experiencing peak starting from the year 2004 which aging goes down in the year 2005 and 2006. The considerable upward rise in the GDP rates in the year 2007 and 2008 was not favorable for the country. From 2009 the graph went down showing a continuous recession for 3 consecutive years (data.worldbank.org/indicator, 2015). The Data levels of China shows that the country has experienced Peak in the year 2007 followed by continuous recession till the data of 2013. The Real GDP rate shows that the country has not yet reached the recovery stage of the business cycle. The graph of Indonesia shows that the country was never in a peak situation rather the oucntrys GDP rates went down considerably in 2009 when if faced recession. The Country now continues to show a trough situation in the business cycle (Justin and Pleskovic, 2011). Reference list Books Brusov, (2012). Hidden Global Causes of the Global Financial Crisis.J. Rev. Global Econ.. Justin, Y. and Pleskovic, B. (2011).Lessons from East Asia and the global financial crisis. Washington, D.C.: World Bank. Milberg, W. and Winkler, D. (2013).Outsourcing economics. Cambridge: Cambridge University Press. Peng, M. (2013).GLOBAL. Mason, Ohio: South-Western, Cengage Learning. Roubini, N. and Mihm, S. (2010).Crisis economics. New York, N.Y.: Penguin Press. Journals Besley, T. (2011). Rethinking Economics: Introduction and Overview.Global Policy, 2(2), pp.163-164. CHANG, W. (2012). THE ECONOMICS OF OFFSHORING.Global J. Econ., 01(02), p.1250009. Ewa Kope, E. (2011). Capital Flow in Contemporary Global Economy.Contemporary Economics, 4(4). Hill, B. (2010). The Economics of American Agriculture: Evolution and Global Development.European Review of Agricultural Economics, 37(2), pp.285-287. Websites data.worldbank.org/indicator (2015) Economic data. Available from https://data.worldbank.org/indicator [Accessed on 12.1.2015]